Research

Publications

On the Slope of the Beveridge Curve in the Housing Market (with Victor Ortego-Marti)
Economics Bulletin, accepted.

Coordination Frictions and Economic Growth
Macroeconomic Dynamics, Volume 27 , Issue 6 , September 2023 , pp. 1528 - 1548
[Paper]

Intermediation in Over-the-Counter Markets with Price Transparency  (with Ioannis Kospentaris)
Journal of Economic Theory, Vol 198, 2021, 105364
[Paper]

Progressive Taxation as an Automatic Stabilizer under Nominal Wage Rigidity and Preference Shocks (with Jang-Ting Guo)
International Journal of Economic Theory, Vol. 18, Issue 3, September 2022, 232-246.
[Paper]

Search and Credit Frictions in the Housing Market (with Victor Ortego-Marti)
European Economic Review, Vol. 134, 2021, 103699
[Paper]

Simultaneous Innovation and the Cyclicality of R&D
Review of Economic Dynamics, Vol. 36, 2020, 122-133
[Paper]

A Note on Progressive Taxation, Nominal Wage Rigidity, and Business Cycle Destabilization (with Jang-Ting Guo)  
Macroeconomic Dynamics,  Vol. 25, Issue 4, June 2021, 1112-1125
[Paper]

The Cyclical Behavior of the Beveridge Curve in the Housing Market (with Victor Ortego-Marti)  
Journal of Economic Theory, Vol. 181, 2019, 361-381
[Paper]

Working Papers

The Real Effects of Financial Disruptions in a Monetary Economy  (with Athanasios Geromichalos, Lucas Herrenbrueck, Ioannis Kospentaris, and Sukjoon Lee)
Journal of Monetary Economics, Reject and Resubmit

Abstract: A large literature in macroeconomics reaches the conclusion that disruptions in financial markets have large negative effects on output and (un)employment. Although diverse, papers in this literature share a common characteristic: they all employ frameworks where money is not explicitly modeled. This paper argues that the omission of money may hinder a model's ability to evaluate the real effects of financial shocks, since it deprives agents of a payment instrument that they could have used to cope with the resulting liquidity disruption. In a carefully calibrated New-Monetarist model with frictional labor, product, and financial markets we show that the existence of money dampens or even eliminates the real impact of financial shocks, depending on the nature of the shock. We also show that the propagation of financial shocks to the real economy is disciplined by the inflation level, thus delivering a policy-relevant message: high inflation regimes raise the likelihood of a financial shock turning into a financial crisis.


The Macroeconomics of Labor, Credit, and Financial Market Imperfections (with Ioannis Kospentaris and Lucie Lebeau)

Abstract: An increasing share of corporate loans, a critical source of firm credit, are sold off banks’ balance sheets and actively traded in a secondary over-the-counter market. We develop a microfounded equilibrium search-theoretic model with labor, credit, and financial markets to explore how this secondary loan market affects the real economy, highlighting a trade-off: while the market reduces the steady-state level of unemployment by 0.6pp, it amplifies its response to a 1% productivity drop from 3.6% to 4.3%. Secondary market frictions matter significantly: eliminating them would not only reduce unemployment by 1.2pp, but also dampen its volatility down to 2.7%.


Unemployment and Labor Productivity Co-movement: The Role of Firm Exit (with Mario Silva)  

Abstract: The Diamond-Mortensen-Pissarides model implies a nearly perfect correlation between labor productivity and unemployment/vacancies, yet the relationship in the data is mild. We show that incorporating sunk entry costs and vacancy creation in an otherwise standard setup can reconcile the discrepancy. Sunk costs cause vacancies to be a positively valued, predetermined variable. If the destruction shock is infrequent, then most vacancies were created in the past, and hence the number of vacancies in the market correlate more closely with past than current labor productivity.  Provided the destruction shock is calibrated to match either micro-level evidence on product destruction and firm exit rates or commonly used values in the growth literature, the model reproduces the empirically observed mild correlation between productivity and unemployment without breaking the strong negative co-movement between unemployment and vacancies.

Efficiency in the Housing Market with Search Frictions (with Victor Ortego-Marti)   [Slides]
Macroeconomic Dynamics, Revise and Resubmit

Abstract:  This paper studies efficiency in the housing market in the presence of search frictions and endogenous entry of buyers and sellers. These two features are essential to explain the housing market stylized facts, in particular to generate an upward-sloping Beveridge Curve in the housing market. Search frictions and endogenous entry create two externalities in the market. First, there is a congestion externality common to markets with search frictions. Sellers do not internalize the effect of listing a house for sale on other sellers' probability of finding a buyer, and on buyers' home finding rate. Second, the endogenous entry of buyers leads to a  composition externality, as new entrants in the markets value housing less and worsen the distribution of buyers' valuations and surplus. The equilibrium is inefficient even when the Hosios-Pissarides-Mortensen condition holds. We quantify the size of these externalities and how far the observed housing market is from the optimal allocation. The optimal vacancy rate, time-to-sell, and vacancies are about half their equilibrium counterparts, whereas the optimal number of buyers and homeowners are slightly above their decentralized equilibrium values. Finally, we investigate the effect of housing market policies on the equilibrium and how they can restore efficiency in the housing market.


Home Construction Financing and Search Frictions in the Housing Market (with Victor Ortego-Marti)
Review of Economic Dynamics, Revise and Resubmit

Abstract: This paper studies the effects of financial frictions in construction on housing market dynamics. To do so, we build a model with search frictions in the housing market and in which developers face credit constraints. Our model explores a novel channel that links credit frictions faced by developers to the housing market. Developers must secure financing before building a home. We model credit frictions in construction by assuming search and matching frictions in the credit market. In the housing market, search frictions capture that it takes time and costly effort to buy and sell houses. In addition, we incorporate endogenous entry of buyers to account for the stylized facts in the housing market. We calibrate the model to quantify the size of the credit channel during the 2012–2019 housing market recovery. Our calibrated model is able to closely match a number of targeted and non-targeted moments. Through a series of counterfactuals, our model predicts that the credit channel had a large impact on housing liquidity, construction, and the vacancy rate, and accounts for around half of the rise in prices during the 2012-2019 housing market recovery.


Government Policy in the Context of Business Cycles and Simultaneous Innovation 

Abstract: This paper examines the business cycle (de)stabilization effects of a government subsidy/tax to R&D investment in a stochastic expanding-variety endogenous growth model. The economy is a version of that in Gabrovski (2018) and features both simultaneous innovation and endogenous innovation quality. Through the means of a numerical exercise, we find that when there is a tax on R&D investment, or a relatively small subsidy, the steady state exhibits saddle-path stability. When there is a sufficiently high subsidy, the steady state becomes a totally unstable source. In the region where the steady state is a saddle-path, promoting innovation either through a decrease in the tax rate or an increase in the subsidy generally dampens the size of business cycle fluctuations. This effect, however, is quantitatively small. 


The Patent System as a Tool for Eroding Market Power 

Abstract: The conventional viewpoint on the patent system is that it allocates market power in order to stimulate disclosure of information and create incentives for  firms to innovate. This paper develops a dynamic equilibrium search model to show that, in sharp contrast to this traditional view, the patent system can erode, rather than allocate market power. This result can be obtained, regardless of whether or not it provides prior user rights, by incentivizing firms to patent and, at the same time, delivering a sufficiently weak patent protection. The patent system delivers incentives by punishing firms that choose not to patent (when there are no prior user rights) and by providing a strategic advantage to firms that patent (when there are prior user rights). I find that it may be optimal to set weak patent protection so as to induce only some firms to patent while others keep identical innovations secret. This result suggests that the patent system's ability to erode market power may be central to its capability to increase welfare.

Work in Progress